Winning stocks with impressive long-term returns can do more than tantalize investors. They might also guide us to the next great stock. For example, paid search king Google
Finding the tail on this coat
Even prior to its Dutch IPO, Google was showered with pessimism about the valuation of its search business. But the company has continued to show Yahoo!, Microsoft, and others just how search is done by taking market share and making search insanely profitable to boot. Google also showed that it had more tricks up its sleeve than just plain old search, building or buying its way into numerous markets including contextual advertising, social media, and mapping applications. All this has added up to more than $3.1 billion in profits last year -- more than double the year before.
If we can nail down some companies profiting from, or outright mimicking, the lightweight profit model that Google created, we might find a hidden treasure worthy of investment. With a giant like Google, investors typically follow the conventional wisdom, looking only for direct suppliers or partners. Obvious choices here include Google's ongoing collaboration with Time Warner's
Motley Fool CAPS can really help us here. The massive Foolish stock database has lots of tools for finding and researching stocks and has the people who pick them.
Tagging along with CAPS
With CAPS, investors can look through Google's tag list for other companies sporting similar attributes. For instance, Google falls under tags such as Internet Information Providers, Paid Search, and Rule Breakers Universe. In addition, the comments that CAPS investors leave about rated companies sometimes lead to similarly attractive investments, even those with little or no direct connection to Google.
These CAPS resources could point investors to companies like multimedia chip specialist Silicon Motion Technology
But because a large part of its business is in Flash memory controllers, Silicon Motion is subject to the ups and downs of the memory market. When management announced it expects tight supply conditions for flash memory to limit growth in the company's third quarter, investors dropped the stock like a hot potato, sending shares down to the bargain bin, where many CAPS investors lauded the opportunity to pick up great growth at a cheap price.
CAPS also turns up another interesting prospect in online rate aggregator Bankrate
Of course, plenty of coattail investments have proven to be mere copycats, ultimately flopping for investors. That's why CAPS is best used as a research tool, not a device to pick stocks for you. Rather than taking anyone else's recommendation, investors should always perform their own due diligence. But you can't beat the information and resources for the price -- namely, 100% free.
Is there another stock you know about that has Google's wind in its sails? Give your own opinion in Motley Fool CAPS.
Bankrate and Baidu.com have both been recommended by the Motley Fool Rule Breakers newsletter. To see what other companies make up David Gardner's market-beating roster, check out a free, 30-day trial.
Fool contributor Dave Mock has never worn a coat with tails; he prefers the waiter style. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. Yahoo! and Time Warner are Stock Advisor recommendations. Microsoft is an Inside Value selection. The Fool's disclosure policy is often imitated but never duplicated.